Paraguay's ueno bank collapse: The controversy that toppled president, locked half country out of money

Paraguayan President Santiago Pena resigned on Thursday after a banking crisis reportedly left nearly half the country's population unable to access their money. However, Congress put his resignation on hold as impeachment proceedings moved forward, meaning he will remain in office temporarily.

Demonstrators protest near the Paraguayan Congress following a session by lawmakers to debate President Santiago Pena's resignation and to consider impeachment proceedings against him. (REUTERS)The crisis at ueno, a prominent commercial bank which officially spells its name with a lowercase "u", has caused a rift within Pena's long-ruling Colorado Party, turning members against the 47-year-old leader.

The developments are a major reversal for the former International Monetary Fund (IMF) economist, who had enjoyed the support of some of the country's most influential politicians and was welcomed in Washington just weeks ago as a key ally of the Donald Trump administration.

It is a digital bank that expanded from a small fintech business into a medium-sized lender in Paraguay. After receiving its banking licence in 2023, ueno quickly became a familiar name across Paraguay. The bank attracted customers with attractive cash-back offers on grocery purchases and expanded to more than 70 locations.

It also became a sponsor of Paraguay's national football team and had its name displayed across the country's main stadium. As of June this year, the company said it had around 3 million (30 lakh) customers in a country with a population of 6.5 million (65 lakh).

It also managed approximately $850 million in public funds, including money belonging to state institutions and pension-related bodies. Its rapid growth made ueno one of Paraguay's most prominent financial success stories.

However, the bank came under regulatory scrutiny in recent months over allegations that it had extended excessive loans to companies associated with its controlling shareholder, Grupo Vazquez. Paraguay's central bank stepped in after finding that ueno had failed to meet minimum solvency requirements, the financial reserves banks are required to hold to ensure they can meet their obligations, including returning customers' deposits.

On Tuesday, the Central Bank seized control of Ueno, calling the move necessary to "protect depositors and preserve the stability of the financial system." The authorities began arranging to transfer recoverable deposits and assets to other banks before selling off the remaining assets.

Arrest warrants were also issued for eight senior executives of Ueno. The bank's president, Miguel Vazquez, surrendered to the police. Meanwhile, Central Bank president Carlos Carvallo, who had earlier served as Ueno's chairman, stepped down at Pena's request.

The bank's app, cards and transfer services stopped working, while its branches shut their doors. This left anxious customers queuing outside in search of access to their money. On Wednesday, a rush to open accounts with other banks caused their mobile applications to crash, adding to public concern.

Authorities have urged people to remain calm. Under a law passed by Congress on Wednesday, a state guarantee fund must compensate affected depositors within five working days. Payments began on Thursday, starting with smaller accounts holding up to around $1,600.

Meanwhile, young employees, still wearing their ueno uniforms, burnt their credit cards and shouted slogans against Pena outside the labour ministry on Thursday. They were demanding severance payments and unpaid wages. The president's resignation did little to ease their anger.

Pena has faced questions over his previous business connections with Grupo Vazquez. He has said he held shares in the group until March 2025, when he sold his stake. Ueno has maintained that Pena never had any direct association with the bank as a shareholder or investor.

Opposition lawmakers have accused him of a conflict of interest, the misuse of pension funds, and the cover-up of institutional wrongdoing. Pena has repeatedly denied having any improper links to the bank. On Thursday, prosecutors said Pena was among those under investigation in connection with the bank's collapse.

However, he has not yet been called in for questioning. The central bank said it was making arrangements to move ueno customers' accounts to other financial institutions. The transfer process put pressure on the entire banking sector and led to technical problems with several banks' apps.